BP To Pay $20 Billion To Compensate Oil Spill Damage

The Obama administration and BP reached an agreement yesterday under which the company will place $20 billion in an escrow account to pay damage claims resulting from the oil spill in the Gulf of Mexico.

Photo: BP To Pay Billion To Compensate Oil Spill Damage

The company, whose chairman announced yesterday that it would not pay dividends to shareholders for the rest of the year, will also contribute $100 million to a fund that supports unemployed oil workers, Boston Globe reports.

"BP's package agreed with President Obama should cool the politic heat and provide some degree of comfort to equity and bond markets, shareholders and businesses/residents in (the Gulf of Mexico) affected by the Deepwater Horizon accident," Evolution Securities said Thursday in a research note.

"The $20 billion claims fund draws a line in the sand (of sorts). It doesn't cap BP's liabilities nor cover fines and penalties but does clarify how BP will settle legitimate claims and cleanup costs."

BP will pay $3 billion into an escrow account in the third quarter of this year and another $2 billion in the fourth quarter. This will be followed by payments of $1.25 billion per quarter until the $20 billion has been paid in, BP said in a statement, according to Wall Street Journal.